The ceiling covers all main types of debt. About 90 per cent of it is plain Treasury bonds.

There are some fine-print exceptions for debt raised under a couple of specific acts. The ceiling applies to gross debt – not net of assets like the Future Fund.

What are the arguments for and against the debt ceiling?

When it was introduced, the ceiling was purported to serve as a reassurance that the government would maintain fiscal prudence despite large deficits in the short term.

By adding an additional hurdle that the governments would need to cross in order to run up debt, it would increase the pressure constraining Commonwealth government budgets.

[The debt ceiling] is at best valueless: the Upper House already had the option to reject budget bills put to it.

Dr Jim Minifie

The argument against the ceiling is that it largely duplicates existing opportunities for the exercise of bargaining power by whomever holds the balance of power in the Upper House.

Thus it is at best valueless: the Upper House already had the option to reject budget bills put to it. Moreover, the ceiling arguably increases the risk that an irrational or impulsive holder of the balance of power in the Upper House could threaten or actually trigger a government shutdown.

[Scrapping the debt ceiling] is a wise move. I find 'the argument against' more compelling.

The Government must now provide detailed reports to Parliament every time debt rises by $50 billion. How often is this likely to happen?

The $50 billion trigger seems like a furphy, as a $50 billion rise since the last debt statement would be needed to trigger another statement.

At today's GDP of just over $1.5 trillion, that would only happen if annual cash deficit were around 6 per cent of GDP - slightly in excess of the deficit at the deepest point of the GFC, and around four times today's level.

Dr Jim Minifie

My reading of the commitment is that the so-called debt statements will be appended to every budget, every Mid-Year Economic and Fiscal Outlook and every Pre-Election Economic and Fiscal Outlook regardless of any increase in debt, so we'll get at least two per year.

The $50 billion trigger seems like a furphy, as a $50 billion rise since the last debt statement would be needed to trigger another statement.

At today's GDP of just over $1.5 trillion, that would only happen if the annual cash deficit were around 6 per cent of GDP - slightly in excess of the deficit at the deepest point of the GFC, and around four times today's level.

If the $50 billion trigger is not indexed, then of course eventually we could be getting debt statements more frequently.

What is the Government’s current debt level?

According to the Australian Office of Financial Management, Commonwealth Securities on issue total $300,678 billion.

That of course is in excess of the $300 billion limit, and as far as I know the relevant provisions are still in force. So I suspect the fine print excluding some debt keeps us under the ceiling.

The Government had warned Australia would reach its debt cap on December 12. What would have happened then?

In the eventuality of reaching the debt ceiling, the government would have to stop issuing new net debt.

While none of its options would be attractive, the least bad option would be to immediately achieve a big enough operating surplus to cover interest costs.

In practice that means restricting expenditure, because increasing tax revenue or selling assets would require the cooperation of the Upper House or would otherwise take time to achieve.

The government would cut its cash outlays for services deemed non-essential in the short run, as seen in the US 'government shutdown' in October.

A much less attractive option would be to default - that is, to miss interest or principal payments on debt. That would sharply increase the government's own debt servicing costs in future, and more importantly would disrupt the Australian financial system, credit flows and the real economy.

In addition one could dream up far-fetched options such as arranging for the RBA to monetise the deficit, but that probably would depend on legislative change and require the cooperation of the Upper House, and anyway would be disruptive if continued for any length of time.

The disruption from such a government shutdown could conceivably be a bit less in Australia than was experienced in the US because the Australian budget deficit is smaller as a percentage of government spending. Nevertheless reaching the ceiling would trigger a spectacular political crisis and it would take a brave politician - whether in government or the Upper House - to trigger a government shutdown or a double dissolution election over a debt ceiling, at least anywhere near the relatively low debt levels we have today.

So some type of agreement between the Greens and the Government was a welcome outbreak of good sense.

As seen in the chart below, levels of government debt spiked in 2009. What factors were behind that?

The spike in 2009-2011 was mainly driven by a large fall in tax receipts, particularly company tax receipts, and by the 'fiscal stimulus', which over four years from 2008-09 totalled $50 billion to $90 billion depending on what is defined as part of the stimulus.

But in addition to the spike there was an underlying trend towards 'structural' deficits (that is, adjusting for the business cycle) that began in the mid-2000s and deepened in subsequent years.

The main contributors to that trend were shifts in the economy away from taxable activity (for example a rise in the GST-exempt share of private sector expenditure), tax cuts (for example tax treatment of superannuation for over-60s) and, in the years since 2008, an increase in structural expenditure of around 2 per cent of GDP.